Singapore has big ambitions for project financing and, having tendered its first public-private partnership (PPP) deal in 2003, the city-state is applying the structure to a wide range of projects.

The most ambitious of all Singapore's planned deals, however, is the Sports Hub, which is now out to tender and scheduled to be commissioned in 2011.

At an estimated cost of at least S$650 million to S$800 million, the Sports Hub will be not only Singapore's largest public-private partnership (PPP), but also the first time anywhere in the world that sports facilities infrastructure has been financed as a PPP.

To add to the challenge, Singapore has no sporting heritage to speak of, yet it is inviting private sector partners to redevelop the city's main stadium into a world-class leisure complex, in the hope of attracting top events, and top athletes, to the country.

The National Stadium, to illustrate the extent of the task ahead, is known by most Singaporeans not for its sporting heritage, but as the focal point for the annual National Day celebrations, held every August 9 to mark the day Singapore first gained independence in 1965.

"Singapore is quite easily recognisable as a geographical centre of south-east Asia," says Keith Martin, director for Sports Hub development at the Singapore Sports Council (SSC). "It is already the region's financial hub, a transport hub, and is growing into a cultural hub with the provision of a world-class theatre and the exciting developments driven by the integrated resorts. We are also seeing the exciting development of sports judging from Singaporeans' increased participation in sports, and increased business activity related to sports over the last few years. The Sports Hub will be a catalyst to further propel sports participation, excellence and industry in Singapore. It will be in its own niche, and at a downtown, waterfront, inner city location."

The SSC is overseeing the redevelopment of the ageing National Stadium and surrounding area into a centrally located Sports Hub, which will include a 55,000 seat stadium, indoor arena, indoor aquatic centre, as well as the existing Singapore Indoor Stadium.

The outdoor arena hosted its last National Day parade this year. It is too old to be refurbished to modern standards and is to be demolished and replaced by a new stadium – complete with retractable roof – that will form the centrepiece of the Sports Hub complex.

Tender

After an extensive market testing and pre-qualification process, three consortia have been invited to submit formal bids. They are led by Alpine Mayreder Bau, Macquarie Bank and Dragages Singapore and each have their own financial advisors and consultants.

Sumitomo Mitsui Banking Corporation is advising the Alpine consortium, which includes architects JSK and local sub-contractor Woh Hup.

Shimizu is Macquarie's main construction partner, while the Australian bank will handle financial advice and arrange debt and equity financing. Dragages, which has teamed up with Arup, is advised by HSBC.

The bid documents were released on July 31 and bidders have until December to submit their proposals. A winner will be announced in the first half of 2007 and the project is scheduled to be commissioned in 2011. Financial close is expected in August 2007.

Singapore's plans for a world-class sports complex are ambitious, but the project team and three bidding consortia have shown their commitment and bankers are confident that the deal will be a success.

The PPP model has already been tested in Singapore, with previous deals have included the SingSpring desalination plant in 2003 and Tuas waste incineration plant in 2005, and the success of both deals has been key in building confidence in the structure.

The successful contractor will redevelop the site at Kallang Bay and operate the facilities under a 25-year concession. Unlike other stadia that have been financed through public-private partnerships, the concession also includes retail space and other sources of revenue, complicating the use of project financing.

However, the criteria laid down in the bid document came as a surprise to some.

"Out of the criteria by which the bids will be assessed, we had expected cost to be higher up the chart," says one banker familiar with the deal. "That's where we are able to add value to a bid, and it's a little unusual for financial considerations not to feature at the top of the list."

Bidding criteria

The criteria laid down by the Sports Council include cost, but the greatest weighting is given to the bidder's ability to attract major sports, entertainment and leisure programmes to the Sports Hub. Design and functionality, together with financial and legal strength, are to be given equal weighting, while facilities management will also be taken into consideration.

"Of course we're looking for value for money," says Martin. "Affordability is very important for the government, as it is for any other PPP in Singapore and around the world. But we've taken a view that financial considerations alone are not necessarily the overriding factor in assessing the bid submissions, and there's been a high weighting given to sport appeal and event programming, which is critical to the long-term viability and vibrancy of the project."

The PPP is a 25-year design-build-finance-operate (DBFO) partnership, and will be structured on an availability-based payment model, rather than being dependent on demand. That means the contractor will not be required to take the risk of hosting a specific number of events or generating a certain amount of earnings per year. Instead, the cost of construction will be repaid in unitary payments throughout the 25-year partnership.

"During the early stages of the project, we needed to identify what the Singapore market could support in terms of financing this kind of arrangement. After gathering market feedback in the pre-qualification stage, we have very much reinforced our initial view, which was that the deal should be availability-based.

"This is not a situation where a stadium is tied to a particular revenue-earning franchise, as is often the case in the US, for example. We're also not in a location that has a clear and recognisable revenue stream coming from sports events. It is a part of Singapore life that needs to be generated, and it did not make sense to expose the partnership completely to demand risk."

Recent stadium financings around the world have proved popular in the capital markets, relying on existing or predictable revenue streams. The UK's Arsenal Football Club refinanced its new stadium with a ticket revenue-backed £260 million ($489 million) bond issue in May this year, while the New York Yankees and New York Mets both completed stadium financings in August, raising funds predominantly through tax-exempt bonds.

With the advice of PricewaterhouseCoopers, and after reviewing other stadium projects around the world, the Sports Council has based the project's structure loosely around the UK's private finance initiative (PFI) model, where the DBFO template has been used to finance schools, hospitals, and other public infrastructure. Similarities between the legal framework in Singapore and the UK have simplified the process, but the project is unique, largely due to the presence of additional revenue streams that hospital and school projects do not have to take into account.

Revenue sharing

One aspect of the structure that has attracted some attention is the provision for revenue sharing between the public and private partners. Under the terms of the PPP, revenue from almost every part of the complex will be split. That comes as a break from traditional stadium financings, where adjoining retail or residential developments have often been sold off or leased out by the private contractor, and has surprised some project finance bankers.

"We had thought about factoring in revenues from the retail element into the financing, but the way these are split makes it harder to predict cash flows and adds another layer of complexity to the deal," said one banker.

Aside from retail revenues, earnings generated by events, car parking, naming rights and advertising will also be shared.

Martin points out, however, that the profit-sharing scheme will incentivise the successful bidder to deliver events and services that meet the Sports Council's goals.

"That [revenue-sharing] model has been used in a positive sense to try to bring benefit to both public and private partners," says Martin. "We obviously have a desire to focus more on sports events but, in simple terms, sports events may not necessarily be the most profitable. We recognise that, and the revenue share models are designed to incentivise the bidders to focus on sport-related events. Even on the retail side, if the successful bidder were able to attract sport-related retail there would be a more favourable revenue share for the PPP contractor."

In many ways, the emphasis on event programming reflects the Singapore government's approach to other projects, particularly the first integrated resort (IR) that is to be developed at Marina Bay – a short taxi or boat ride from the Sports Hub site.

The first IR was tendered earlier this year and awarded to Las Vegas Sands in May. The assessment criteria were weighted in favour of the project's contribution to tourism (40%), while the architecture and design was the second most important element. The goals of the projects may be similar, but the IR is structured as a land sale rather than a long partnership.

A template for future PPPs

The Sports Hub is likely to be much closer in structure to forthcoming PPPs for the National University of Singapore (NUS), financing the development of student housing, and the Institute of Technical Education, which is building the new ITE College West.

The Singapore government has issued a PPP handbook to act as a framework for future projects, increasing the degree of commonality, while the various government agencies involved are not reluctant to share experiences. The Sports Council has been sharing its growing expertise with the NUS, which is likely to be Singapore's next PPP.

Says Martin: "There's no direct comparison between a water-treatment plant and the Sports Hub, but we have been able to take some guidance from others in areas such as legal drafting, and the interpretation of the government's PPP handbook."
During the RFP process, the challenge for the Sports Hub team is to communicate the goals of the project to the three bidding groups, making sure that the final proposals will all meet their requirements.

A first round of question-and-answer sessions with the bidders was held at the start of September, and the project team was pleased with how the tender document was received.

"Feedback has been very positive and has demonstrated that the bidders have put a lot of work in and are very committed to the project," Martin says.

With almost 20 years at AMEC, Martin is well qualified to lead the Sports Hub project to a successful conclusion. And, after leading the financial close team on Korea's groundbreaking W1.45 trillion ($1.4 billion) Incheon Bridge project, he is looking forward to the challenge. "As this is a new structure and the first of its kind in Asia, it does add a degree of complexity, but in my experience that makes the team that bit sharper and generates new approaches and new solutions. There are clearly benefits to our side from that."